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Facts
The assessee, a trust, was granted exemption under Section 11 of the Income Tax Act for assessment years 2014-2015 to 2016-2017 and 2018-2019. The PCIT subsequently passed revisionary orders under Section 263, directing the Assessing Officer to make inquiries into the assessee's activities, interest charged/paid, and entitlement to Section 11 exemption. The assessee appealed these orders, contending that its activities were already held to be charitable in its own case for an earlier assessment year.
Held
The Tribunal observed that the issue was covered by its previous order for AY 2011-2012, which held the assessee's micro-financing activities as charitable under Section 2(15) of the Act, a decision affirmed by the Kerala High Court. Applying the principle of consistency, the Tribunal quashed the revisionary orders passed by the PCIT under Section 263. The appeals filed by the assessee were therefore allowed.
Key Issues
Whether the PCIT's revisionary orders under Section 263 were justified when the assessee's micro-financing activities had already been judicially determined as charitable, entitling it to Section 11 exemption, in previous assessment years.
Sections Cited
263, 11, 147, 143(3), 2(15)
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Income Tax Appellate Tribunal, COCHIN BENCH, COCHIN
Before: Shri George George K, Vice- & Shri Inturi Rama Rao
O R D E R
Per George George K, Vice-President :
These appeals at the instance of assessee are directed against four separate orders of the Principal Commissioner of Income Tax (hereinafter “PCIT”) passed u/s.263 of the Income-tax Act, 1961 (hereinafter “the Act”) (orders dated 30.03.2024 and 31.03.2024). The relevant assessment years are 2014-2015 to 2016-2017 and 2018-2019.
-488/Coch/2024. Society For Rural Improvement. 2. Common issue is raised in these appeals, hence, they were heard together and are being disposed of by this consolidated order. Identical grounds are raised in these appeals. The grounds raised read as follows:-
“1. That the order passed by the Ld. Commissioner of Income Tax (Exemptions), Kochi u/s.263 of the Income Tax Act dt. 30.03.2024 revising the assessment order dt. 26.03.2022 for A.Y. 2014-15 is infirm and unsustainable in law and contrary to facts and circumstances of the 2. That the Ld. Commissioner of Income Tax (Exemptions) erred in invoking the provisions of sec. 263 of the Act in as much as there is no error in the assessment under passed by the Assessing Officer.
3. That the Ld. Commissioner of Income Tax (Exemptions) erred in ignoring the fact that in the appellant's own case, there is a binding jurisdictional High Court decision holding that the activities carried on by the appellant is a charitable activity.
4. That the appellant craves leave to add, alter, amend, modify, substitute, delete and/or rescind all or any of the grounds of appeal
on or before the final hearing, if necessity so arises
5. In the above facts and circumstances of the case, the appellant most humbly prays the Hon'ble Income Tax Appellate Tribunal, Cochin Bench, may kindly be pleased to set aside the order u/s. 263 of the Ld. Commissioner of Income Tax (Exemptions) and render justice to the appellant.”
Brief facts of the case are as follows: The assessee is a trust. For the assessment years 2014-2015 to 2016-2017 and 2018-2019, the assessments were completed granting exemption u/s.11 of the Act (for AYs 2014-2015 to 2016-2017 the assessments were completed u/s.147 r.w.s. 143(3) of the Act, for -488/Coch/2024. Society For Rural Improvement. assessment year 2018-2019, the assessment was completed u/s.143(3) of the Act.). The PCIT passed the orders u/s.263 of the Act for assessment years 2014-2015 to 2016-2017 and 2018-2019, directing the Assessing Officer (hereinafter “the AO”) to make inquiries with reference to the interest charged and interest paid, verify the nature of activities, vis-à-vis, the object of the assessee-trust and whether the assessee is entitled to exemption u/s.11 of the Act.
Aggrieved by the orders passed u/s.263 of the Act by the PCIT, the assessee has filed the present appeals before the Tribunal. The learned AR submitted that the issue in question is squarely covered by the order of the Tribunal in (order dated 01.06.2016) in assessee’s own case for assessment year 2011-2012, wherein it has been categorically held that the micro financing activities carried on by the assessee, qualify as charitable activity under the first limb of section 2(15) of the Act. It is submitted that the above order of the Tribunal was confirmed by the Hon’ble Kerala High Court in of 2016 (judgment dated 19.12.2016).
The learned CIT-DR strongly supported the order of the PCIT.
We have heard rival submissions and perused the material available on record. Cochin Bench of the Tribunal, in assessee’s own case for assessment year 2011-2012 (supra) had categorically held that the micro financing activities carried on by the assessee-trust is a charitable activity under the first limb of sec.11 of the Act. The relevant finding of the Cochin Bench of the Tribunal, reads as follow:-
“16. We have heard the rival contentions and carefully perused the records. On going through the Assessment Order and the order of the CIT(A), we find that the main issue considered is whether the assessee is a Charitable Trust providing relief to the poor, education, medical relief etc., falling within the first part of the definition of whether its object is “advancement of any other object of general public utility”, falling within the last limb of the definition as amended by Finance Act, 2008”. The assessee has furnished a copy of the Deed of Trust dated 26/02/1996 in the Paper Book. The dominant object of the Trust as per Cl. (3) are – “to undertake such project and programmes as may be necessary to alleviate poverty of the poorest and needy rural folk, especially rural women regardless of caste, creed, colour, religion or political affiliations and to encourage thrift and savings habits among rural population from the commencement of the Trust in 1996 onwards.” The above object of the Trust is carried out by providing financial assistance to indigent women. The relief to the poor is the dominant activity. The dominant objective is lending money to poor. Micro financing activity is not money lending business as commercially understood. Funds are provided to the rural women folk, who do not have any security to offer for availing loan. These women cannot approach bank or leading institutions for help as they cannot afford to provide security for availing loans. The assessee is helping the socially and economically weaker sections of the Society, as no other agency reaches out to meet their requirements. The fact that the assessee does not demand security for the loan and that the loans are given to rural women folk belonging to low income households and that such financial assistance is based on reasonable rate of interest for self employment, rehabilitation and such other self help programmes, would go to establish that the 4th limb of the definition of charitable institution as defined in Sec.2(15) of the Act, does not apply to the assessee’s Trust. Going by the activities carried out by the assessee, it is clear that the objective of the Trust is not to conduct money lending business, but to do relief to the poor. Micro financing activity is an object based financial assistance to the poor rural population, particularly to the poor women, who do not have assets or property to offer as security. Such persons are provided with small loans not exceeding Rupees Eight thousand in the case of the assessee, at a time, which is collected back in monthly and periodical instalments ranging upto fifty instalments. The repayments are again recycled in the form of application of funds. According to the assessee, it is helping to the poorer sections of the Society for rehabilitation and self employment. The rate of interest may range from 10 to 15% effective rate of interest or from 19.5% to 25 to 29% per annum on reducing balance which is not the deciding factor. Part of the interest received is admittedly utilized for providing financial assistance to the beneficiaries in the form of welfare fund to the numerous beneficiaries. This fact is referred to in the CIT(A)’s order vide paragraph-7(ii). As per Balance Sheet ending on 31.03.2011, an opening -488/Coch/2024. Society For Rural Improvement. balance of the capital from beneficiaries security collection of Rs.13.39 Crores, on which interest paid is Rs.58,56,118/-. That means, out of interest collected from the beneficiaries on loan given is not taken wholly by the assessee but a portion thereof is credited to beneficiaries future security a/c as a benevolent fund which is kept in the saving a/c and an interest @ 4% is credited to the said benevolent fund, which is taken by the beneficiaries along with interest , while leaving the institution . Therefore an amount of Rs.13.39 Crores is lying to the credit of the beneficiaries in the form of benevolent fund as at 31.03.2011. This activity being a charitable activity is quite distinguishable from the money lending activity of various lending firms.
It will be profitable to make reference to the findings of the Hon’ble High Court of Andhra Pradesh in the aforesaid judgment. The Hon’ble High Court of Andhra Pradesh held as follows:- “The learned Tribunal has concluded on fact that the activities of the assessee are in the nature of charitable activities. It has been further held on appreciation of fact that micro financing activity in the instant case is a charitable activity. The learned Tribunal has also relied upon the judgment of the Bangalore Bench of the Tribunal on identical fact that the micro financing to the poor people is a charitable activity. Under such circumstances, the assessee was granted exemption u/s. 11 of the Income Tax Act, the Learned Tribunal further found that in order to achieve the main purpose of the charitable activity, the assessee has joined hands in some other financial organizations and banks. Such steps to collect money for micro financing does not defeat the real object in order to deprive of the exemption. We do not find any infirmity in the order of the learned Tribunal, which is based on fact finding and such facts attract the provision of exemption.” The principle laid down in the above judgment would negative the contention of the Assessing Officer that the micro finance is merely a money lending activity without any charitable object. As regards reliance placed by Ld. AR on the decision of the ITAT, Chennai Bench, the assessee has a benefit of judgment of Hon’ble High Court of Andhra Pradesh and other Tribunals in his favour. Therefore, any decision which is favourable to the assessee should be followed in view of the judgment of the Hon’ble Supreme Court in the case of Vegetable Products 88 ITR 192.
Based on the above judgments and for reasons stated above, we are in agreement with the findings and the decision of the Ld. CIT(A) and accordingly, the order of the Ld. CIT(A) is upheld. Thus all the grounds of the Revenue are dismissed. Accordingly, the appeal of the Revenue is dismissed.”
-488/Coch/2024. Society For Rural Improvement. 7. The above order of the Tribunal has been confirmed by the judgment of the Hon’ble Kerala High Court (supra). The relevant finding of the Hon’ble Kerala High Court reads as follow:-
“3. Reading of the provision shows that relief to the poor is incorporated as first limb of the Section to qualify as a charitable activity. Insofar as this case is concerned, reading of the order impugned itself shows that the activity of the assessee is advancing loans to poor women from the villages. Such an activity, to our mind, qualifies to be relief to the poor is to be included in the first limb of the Section.”
We find from the activities of the assessee carried on in A.Y. 2011-2012 and for the relevant assessment years are identical. Though the principle of res judicata is not applicable to the Income-tax proceedings and that each assessment year has to be viewed and examined separately, with regard to the activities carried on by the assessee, the principle of consistency has to be followed in situations where on the same set of facts are permeating through different years. In the instant cases, we find that the activity carried on by the assessee was providing micro financing in rural areas as it was done by assessee for A.Y. 2011-2012. The said activity has been categorically held to be coming within the first limb of sec.2(15) of the Act and not that of objects of general public utility. Therefore, following the judgment of the Hon’ble Kerala High Court (supra), we quash the revisionary order passed by the PCIT u/s.263 of the Act. It is ordered accordingly.
In the result, the appeals filed by the assessee are allowed.
Order pronounced on this 14th day of May, 2025.